Meta Platforms: An Overview With InvestingPro In The Aftermath Of Dismal Earnings
Francesco Casarella | Oct 28, 2022 12:08
- Meta is back to 2016 levels after yet another dismal earnings report
- The Metaverse continues to account for the greater part of the company's losses
- However, InvestingPro shows that there are still positive aspects in Meta's balance sheet
- DAU (Daily Active Users): +4%.
- MAP (Monthly Active Users): +4%.
- Ad Impressions: +17%
- Price per Ad: +18%
- Revenue: -4% YoY
- EPS: -49% YoY
- The strength of the U.S. dollar, which has impacted the returns of virtually every U.S. company with a global business scope
- The context of general weakness in ad revenue, which was also a key problem in Alphabet's (NASDAQ:GOOG) and Snap's (NYSE:SNAP) reports
- Competition from TikTok; although Instagram Reels has performed remarkably well
- The Metaverse starts to turn around and brings Meta Platforms to unseen businesses and horizons (with significant impacts on the stock).
- Eventually, Zuckerberg realizes the Metaverse is a losing bet and returns to doing what he has been doing all along.
Despite rebounding in today's session, Meta Platforms (NASDAQ:META) is down roughly 23% since reporting earnings on Wednesday. Amid sinking EPS, the report had some positive surprises, i.e., year-on-year user growth and higher-than-expected revenue ($27.71 billion vs. $27.57 billion expected).
Source: InvestingPro
Here are the key metrics from Wednesday's report:
Let's, as always, check in with InvestingPro to analyze the stock in more detail.
Meta has effectively returned to 2016 levels (down 73% from highs). Now, that seems excessive to me if we consider the phenomenal profit made during the last six years.
Source: InvestingPro
At the valuation level, the stock has a Fair Value of $208, implying a 108.4% upside potential from current levels.
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Source: InvestingPro
The main problems of the last three quarters, which coincided with a decline in earnings, are:
But the main bet from Zuckerberg is the Metaverse, which has, to date, produced no profits, and represents a living cost that impacts the entire company's business.
Source: Quartr
As we can see from the line in red, the Reality Labs segment produces just $285 million in revenues compared to almost $28 billion overall (nothing) but impacts at the loss level with around $3.67 billion.
Even at the CapEx level, which impacts investments, we see a major increase in the last three quarters precisely because of the heavy investment in this segment.
Now, there are two stories:
Either way, Meta's accounts would improve.
At the balance sheet level, if we consider that Meta has about $42 billion between cash and short-term investments, this equates to about $16 per share or 15% of the value of the stock.
I believe, in the short term, Meta has been excessively penalized, as happened to Netflix (NASDAQ:NFLX), PayPal Holdings (NASDAQ:PYPL), Alibaba (NYSE:BABA), and many others like them.
So while there are elements of short-term weakness, I personally believe that Meta makes little sense at current levels. Thus, for long-term investors, this could represent a great buying opportunity.
Disclosure: I closed my positions in Alibaba and will continue to buy Meta Platforms at current levels with multiple entries.
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